COPT Defense Properties (CDP) 2026年第三季度业绩电话会：上调FFO指引

核心要点

• 第三季度FFO为每股0.71美元，同比增长2.9%，超出公司指引中点0.02美元。同物业现金NOI增长3.2%。
• COPT Defense Properties将2026年调整后FFO指引中点上调至每股2.80美元，并将同物业现金NOI增长指引上调至4.25%。
• 该公司在本季度完成了222,000平方英尺的空置租赁，今年迄今完成504,000平方英尺。公司将全年空置租赁目标上调至625,000平方英尺。
• 国防IT资产组合贡献了93%的NOI，期末出租率为96.2%，入住率为95.2%。
• 进行中的开发项目规模达到110万平方英尺，预租率达64%，代表近5.3亿美元的已承诺资金。
• 管理层将利率上升视为近期主要风险。据估算，SOFR上升及浮动利率债务增加可能导致2027年利息费用增加约800万美元，即每股0.07美元（相比2026年）。

核心财务数据

业务与运营业绩

COPT Defense Properties 在 2026 年前九个月完成了 300 万平方英尺 的总租赁面积。在近 100 万平方英尺的空置与投资租赁总量中，约有 80% 涉及现有租户，反映了在该资产组合中已有业务运营的国防承包商的需求。

在 Columbia Gateway，与美国网络司令部相关的租赁占年初至今空置租赁的近一半。公司重新收回了 5.6 万平方英尺 的非国防租户面积，并由 Frequentis 完全填补空缺，租约预计将于 2027 年第一季度生效。自年初以来，Frequentis 通过四笔交易在该园区扩大了近 10 万平方英尺的面积。

在亨茨维尔，运营中的资产组合出租率为 98%。COPT Defense 承诺投入 8800 万美元 用于 Redstone Gateway 的两项储备开发项目：位于 Redstone Gateway 6300 号的 17.5 万平方英尺 项目，以及位于 Rideout 路 2200 号的 5.9 万平方英尺 项目。管理层表示，包括“金穹”（Golden Dome）倡议在内的导弹防御任务为需求提供了支撑。

公司将 Redstone Gateway 的开发容量进一步扩大了 50 万平方英尺。在不建造多层停车场的情况下，该园区目前可容纳 640 万平方英尺，从而留出了 320 万平方英尺 的未来开发容量。管理层目前正在设计接下来的 5 栋楼宇，并规划另外 8 栋。

开发租赁管线规模达 110 万平方英尺，同时还在跟踪另外 120 万平方英尺 的潜在机会。8 个活跃项目中有 4 个已完全预租。

管理层业绩指引

管理层将租户留存率目标的下调归因于战略性收回了近16万平方英尺（涉及三家租户）的面积。公司已经或预计将其中超过14.5万平方英尺的面积出租给信用状况和增长前景更佳的租户。

调整后的FFO展望意味着2026年将实现约3% 的增长，尽管融资成本较高且受可交换票据稀释。管理层表示，若剔除这些票据新增的稀释因素，增长率本约为4%。

风险与关注要点

高利率仍是管理层近期的主要顾虑。公司引用的远期SOFR曲线显示，均值将从 2026年的3.7%升至2027年的4.4%。结合预计浮动利率债务将增加超过1.25亿美元的情况，这可能会使2027年的利息支出增加约800万美元。

长期借贷成本也有所增加。管理层指出，当前市场定价可能意味着5年期无担保债务的综合利率约为 5.8%，10年期无担保债务的综合利率约为 6.3%。然而，COPT Defense在 2028年9月之前没有重大到期债务。

国防预算出台的时机仍给租赁活动带来不确定性。尽管如此，管理层预计美国国防部2027财年拨款法案最晚将于2月通过，并强调租赁活动通常滞后于预算拨款 12至18个月。

公司还表示，高利率环境限制了其以能增进股东权益的价格出售剩余非核心资产的能力。管理层指出，潜在的资产处置可能还在数年之后。

分析师问答环节亮点

• Redstone Gateway项目经济效益：管理层表示，开发承销标准并未改变，目标依然是 8.5%的初始现金收益率（按开发成本计算）。需求在现有的 Redstone 租户与新入驻租户之间大致各占一半。
• 战略性空间收回： 在这三笔交易中，重新出租的整体经济效益大致持平，其中一笔基本持平，一笔上涨约 20%，一笔下降约 20%。管理层预计空置时间极短，因为这些空间能实现即刻或近乎即刻的租户填补。
• 数据中心续约： 三处数据中心外壳续约在当季带来的加权平均现金租金增幅达 140%。约 30 万平方英尺的总建筑面积将于 2028 年到期，近 100 万平方英尺将于 2029 年到期，不过 COPT Defense 的经济权益份额仅为 10%。
• 出租率提升空间： 管理层预计将在未来几年提升国防 IT 板块的出租率，但同时也指出，将可用空间与租户的专业需求相匹配，使得迈向完全出租变得困难。
• 网络安全需求： 管理层认为，人工智能可能会增加网络威胁，并需要追加额外的国防支出以保护政府网络。

业绩电话会议完整文字实录

完整财报电话会议逐字稿

管理层陈述

Operator

Thank you. Hello, welcome to COPT Defense Properties third quarter 2026 results conference call. As a reminder, today's call is being recorded. At this time, I will turn the call over to Mr. Venkat Kommineni, COPT Defense's Vice President of Investor Relations. Sir, you may begin.

Venkat Kommineni

Thank you, Tawanda. Good afternoon and welcome to COPT Defense's conference call to discuss third quarter results. With me today are Stephen Budorick, President and CEO, Britt A. Snider, Executive Vice President and COO, and Anthony Mifsud, Executive Vice President and CFO. Thank you. Reconciliations of GAAP and non-GAAP financial measures that management discusses are available on our website, in the results press release and presentation, and in our supplemental information package. As a reminder, forward-looking statements made during today's call are subject to risks and uncertainties, which are in our SEC filings. Actual events and results can differ materially from these forward-looking statements, and the company does not undertake a duty to update them.

Stephen E. Budorick

Good afternoon, and thank you for joining us. We had another great quarter with continued strength in demand and a robust underlying business environment highlighted by our vacancy leasing achievements. It all translated into solid results, which I'll detail. For the third quarter, FFO per share was $0.71, which was 2 cents above the midpoint of guidance and represents a 2.9% increase year over year. Same property cash NOI increased 3.2% year over year and 5.3% during the nine months. We had a particularly strong quarter in terms of vacancy leasing, executing 222,000 square feet, which exceeded our trailing five-year quarterly average by 50%. This achievement brings vacancy leasing during the first nine months to 453,000 square feet, which amounts to 95% of our prior full-year target of 475,000 square feet and over 110% of our initial target of 400,000 square feet.

We committed $88 million to two developments at Redstone Gateway, which we announced on our last call. The Huntsville operating portfolio is 98% leased and continues to see very strong demand, which led us to start these projects to provide the vital inventory we need to meet the demand we're seeing and to accelerate those lease commencements. Turning to guidance, we increased the midpoint of 2026 guidance for four metrics. FFO per share, as adjusted for comparability, increased to $2.80 per share. Same property cash NOI growth increased to 4.25%. Capital committed to new investments increased to $375 million. Capital invested in development and acquisitions increased to $240 million. Anthony will provide additional detail on what drove these increases.

We decreased the midpoint of our tenant retention guidance for a very good reason: to support the growth of core tenants and strengthen our tenant roster. Our tenant retention was actually tracking 84%, but we created an opportunity to recapture space from three suboptimal tenants and release those spaces to high-value tenants with strong long-term growth and credit profiles. As a result, we're reducing the midpoint of our tenant retention guidance by 250 basis points to a still very strong 80%. We made a corresponding change to our vacancy leasing target, increasing it to 625,000 square feet as we have leased or expect to lease over 145,000 square feet of this nearly 160,000 square feet of space recaptured from the three tenants. The strong level of demand in our portfolio positioned us to proactively enhance our tenant growth profile while continuing to maintain a sector-leading tenant retention rate.

With the midterm election just days away, I'd like to remind everyone of the immense stability in our country's support for increased defense spending over the past 12 years, regardless of the shifts in control of the Chambers of Congress and the Presidency. First, over that period, there's been a balance between unified and split control of government. With six years of unified control, including the presidency and both chambers — four under the Republican Party and two under the Democrat Party — and six years of split control. Despite these control changes within the government, there has been strong bipartisan support for defense spending throughout the period. Since fiscal year 2015, the National Defense Authorization Act has, on average, passed the House by a margin of 3.5 to 1 and the Senate by over 7.5 to 1. During this period, the defense-based budget grew by $285 billion, or 51%. And that equates to a compound annual growth rate of nearly 4%, with annual increases occurring in each of those 12 years.

Second, our business is primarily driven by the Department of Defense base budget, which at $840 billion in fiscal year 2026, is the highest defense budget in history. Looking forward, the FY2027 base budget request is $1.1 trillion. With the challenging global threat environment, we expect defense spending will continue to be a priority regardless of the election results. And finally, given the 12 to 18 month lag we generally experience between budget appropriation and leasing activity, there is embedded demand throughout our portfolio from funding that has already been appropriated. The FY2025 and FY2026 budgets plus the $150 billion of funding appropriated in the One Big Beautiful Bill Act, will continue to produce demand in our portfolio through 2027. The FY2027 budget, when ultimately passed, will drive activity in 2028 and 2029. So notwithstanding the election, we have a very strong funding backdrop, supporting our underlying industry.

We're not the only company seeing growth opportunities created by the massive investments in technological advancement in support of national defense. There's a rising tide of private capital targeting the defense sector space, and in particular, emerging technologies. In fact, Blackstone has invested $20 billion in the sector over the past five years, with a recent investment of $1 billion to form a defense tech platform specializing in missile interceptor technology. A Parallel Group announced a $3 billion defense fund. They recently invested in the company developing low-cost hypersonic weapons. JPMorgan announced the $1.5 trillion security and resiliency initiative last year to finance and facilitate investments in key areas of economic and national security, including aerospace and defense, and frontier and strategic technologies such as cybersecurity and quantum computing. Clearly, the investment priorities of the Department of Defense are generating a strong response from the private sector to deploy capital to companies serving the same priority missions supported by our portfolio, which include intelligence, cybersecurity, and missile defense. So, having touched on the highlights of the business, I'll turn it over to Britt.

Britt Snider

Thank you, Steve. Before I walk through the operating performance during the quarter, I'd like to highlight the strong leasing results driven by our unique strategy. We have executed 3 million square feet of total leasing during the first nine months, which includes strong performance on the vacancy leasing front and very healthy demand. We are executing leases with tenants supporting broader missile defense missions in Huntsville and have a robust pipeline of additional prospects. We are also executing leases with tenants supporting U.S. Cyber Command and Columbia Gateway, which accounts for nearly half of our vacancy leasing year to date. And finally, of the nearly 1 million square feet of combined vacancy and investment leasing executed year to date, roughly 80% is with existing tenants. This highlights one of our key strengths, our tenant relationships, as the leading defense contractors in the country have multiple leases with us in multiple markets.

At the end of the third quarter, our total portfolio was 95% leased and 94% occupied, while our Defense IT portfolio, which accounts for 93% of our NOI, was 96.2% leased and 95.2% occupied. The 60 basis point decrease in the total portfolio's lease rate was primarily driven by two events. First, the law firm tenant that leased both its new and old space in Baltimore last quarter vacated their old space this quarter, which accounted for 30 basis points of the decrease. Second, as Steve discussed, a strategic early lease termination accounted for 20 basis points of the decrease. In Redstone Gateway, we recaptured 46,000 square feet from a defense tenant underutilizing their space. We are in advanced negotiations to backfill the bulk of that space to Lockheed Martin to expand its presence in the park by nearly 30% and have several great prospects for the remainder of the space. This overall decline was mitigated by 50 basis points of offsetting occupancy by placing MBP 400, our 100% occupied inventory development at the National Business Park, into service during the quarter.

As a result, total portfolio occupancy only declined by 10 basis points. Additionally, in Columbia Gateway, we recaptured 56,000 square feet from a non-defense tenant, set to vacate in 2027. We fully backfilled that space to Frequentis, an existing and fast-growing defense contractor in the park, focused on both cyber and aviation. We expect that lease to commence in the first quarter of 2027. Frequentis has more than doubled its footprint in Columbia Gateway since the beginning of the year, starting at 87,000 square feet, then expanding by nearly 100,000 square feet through four separate transactions. Both examples speak to a few of our key competitive advantages of proactive asset management scale, commitment to accommodate tenant growth throughout the portfolio, and a strong balance sheet and cash flow to fund tenant improvements. One additional point about Columbia Gateway: earlier this month, we also signed a 30,000 square foot lease at Franklin Center, bringing that recent acquisition up to 87% leased.

We executed 222,000 square feet of vacancy leasing during the third quarter and 504,000 square feet year-to-date. This achievement equates to over 125% of our initial full-year target of 400,000 square feet and over 105% of our second quarter full-year target of 475,000 square feet. We have over 200,000 square feet of prospects in advanced negotiations, which we define as over 90% likely to execute. Taken together, there are 710,000 square feet of leases, either executed or in advanced negotiations, which supports our decision to increase our target for vacancy leasing to 625,000 square feet for the year. Our leasing activity ratio has grown to a very strong 83%, which is based on over 1 million square feet of prospects on about 1.25 million square feet of availability. Of the 710,000 square feet of vacancy leasing executed or in advanced negotiations, approximately 55% or 390,000 square feet leases space that was vacant at the beginning of the year. 25% or 175,000 square feet leases non-renewing space in 2026 and 2027 and backfills nearly 20% of the forecasted non-renewals in 2026. And 20%, or 145,000 square feet, backfills the majority of the nearly 160,000 square feet of the strategically recaptured space. Again, this activity demonstrates our proactive asset management, the result of which is to satisfy our tenants' needs while minimizing downtime and capitalizing on the strong level of demand across the Defense IT portfolio.

Turning to renewal leasing, we executed nearly 550,000 square feet in the quarter, with tenant retention of 70%, cash rent spreads up 8.5%, and GAAP rent spreads up 20%. Retention results were heavily influenced by two of the three space recapture activities, which impacted tenant retention in the third quarter by 11 percentage points. Cash rent spreads in the quarter were heavily influenced by our 10% joint venture share of three data center shell renewals, which had a weighted average increase in cash rent spreads of 140%. Over the past three years, we have executed 10 data center shell renewals, all of which are held in JVs, totaling 1.7 million square feet at a weighted average cash rent spread of over 120%. Excluding the data center shell renewals, cash rent spreads would have been up 70 basis points in the quarter and up 2.7 percent over the nine months.

Moving on to development, our active pipeline now totals 1.1 million square feet. That is 64% pre-leased and amounts to nearly $530 million in capital commitment. Four of the eight projects are 100% pre-leased. Of the remaining four projects, 8500 Advanced Gateway is nearly 90% pre-leased. As we signed a 75,000 square foot lease this quarter tied to missile defense and are in advanced negotiations on a 14,000 square foot lease, which will bring the building up to just over 98% leased. This inventory building will essentially be fully leased only six months after substantial completion of construction.

We are in active discussions with multiple government missions related to space and missile defense at 410 Goss Road, which is our inventory building for the government. And we continue to expect lease activity for that building sometime in 2027. With the bulk of our Huntsville portfolio already leased, we kicked off development of two defense contractor inventory projects this quarter, which total $88 million in capital commitment. At 6300 Redstone Gateway, a 175,000 square foot development, we have 235,000 square feet of prospects. At 2200 Rideout Road, a 59,000 square foot development, we have 105,000 square feet of prospects. The government's massive investment in missile defense, which includes the Golden Dome Initiative, is emerging as a catalyst for growth in our Huntsville portfolio. Within the past year, we have already executed 170,000 square feet of vacancy and investment leasing tied to these missions, with a strong pipeline of demand behind that. Given the dynamic environment we're in, we revisited our Redstone Gateway Master Plan and expanded our development capacity by an additional 500,000 square feet. The park can now accommodate 6.4 million square feet without structured parking, increasing our future development capacity to 3.2 million square feet. We are already designing the next five buildings and planning the next eight buildings after that. When fully built out, the Redstone Gateway would become the largest park in our portfolio. Our development leasing pipeline, which we define as opportunities we consider 50% likely to win or better within two years or less, currently stands at 1.1 million square feet. On that, we are tracking an additional 1.2 million square feet of potential development opportunities. With that, I'll hand it over to Anthony. Thank you, Britt.

Anthony Mifsud

Thank you, Britt. We reported third quarter FFO per share of $0.71, which was 2 cents above the midpoint of guidance and included 1.3 cents of dilution from our exchangeable notes. The quarter benefited primarily from lower than anticipated net operating expenses, including the timing of R&M expense, which will occur in the fourth quarter, and higher space recapture and net development fees. Same property cash NOI for the quarter increased 3.2% year-over-year, driven by cash rent starting on development and acquisition leases, which commenced in prior years, partially offset by lower real estate tax refunds. Same property occupancy ended the quarter at 93.9%, and we continue to expect to end the year at roughly 94%.

With respect to guidance, we increased the midpoint for the following four key metrics: We increased the midpoint of same-property cash NOI growth by 25 basis points to 4.25%, 175 basis points above initial guidance, based on our outperformance this quarter. We increased the target of capital committed to new investment guidance by $40 million to $375 million, which is 50% above initial guidance. This increase is to accommodate enhanced security requirements for the mission work at our fully pre-leased development project in San Antonio, a commensurate increase in rent, which will maintain our development yield. We increased the midpoint of capital invested in development and acquisitions by $15 million to $240 million as we are ahead of schedule on several projects. Finally, we increased the midpoint of FFO per share, as adjusted for comparability, by 2 cents to $2.80, driven primarily by the overachievement in the third quarter.

When we provided our $2.75 per share initial 2026 guidance for FFO, we explained that the 1.1% implied growth was muted when compared to the 5% compound annual growth we achieved between 2019 and 2025, as it incorporated the increase in interest expense associated with the refinancing of the $400 million, two and a quarter percent bond, and the required recognition of the hypothetical dilution from our exchangeable notes. Since then, the 20% increase in our stock price during the first nine months has increased the dilution from the notes by an additional 2 cents for a total of 3 cents for the year. Our revised guidance reflects overcoming that incremental drag and increasing the midpoint of our FFO per share guidance from our initial estimate by 5 cents to $2.80 per share, equating to roughly 3% growth. Excluding the increased dilution from our exchangeable notes, FFO per share growth would have been roughly 4% this year.

A common theme among the sell-side REIT earnings previews has been how the impact of the higher interest rate environment will weigh on FFO per share growth over the next few years. Regarding short-term rates, the forward curve for SOFR forecasts an increase from an average rate of 3.7% in 2026 to 4.4% in 2027. The impact of this 70 basis point average increase in SOFR, combined with a forecasted increase in our variable rate debt of over $125 million next year, results in a significant increase in our interest expense in 2027 relative to 2026 of approximately $8 million, or 7 cents per share. With respect to long-term rates, the five and 10-year Treasury yields have increased roughly 105 and 80 basis points respectively since the beginning of the year. The market suggests we could currently price five-year unsecured debt at a spread of 100 basis points for an all-in rate of 5.8%, and 10-year unsecured debt at a spread of 130 basis points for an all-in rate of 6.3%. Despite these increases in long-term Treasury rates, we are well positioned given the fact that we have no material debt maturities until September 2028. Our credit spreads are the lowest in the office subsector. We enjoy tremendous support from the fixed income investor community, and our balance sheet and financial metrics continue to strengthen as the operating portfolio continues to grow and we place highly leased development projects into service. With that, I'll turn the call back to Steve.

Stephen E. Budorick

Thank you. So, we're having another very successful year, and we are once again outperforming in virtually all our key measures. We increased the midpoint of 2026 guidance for four key metrics. We now expect FFO per share growth of nearly 3% in 2026, despite the headwinds from higher financing costs. We expect to commit $375 million to new investments during the year, which is the highest level of capital commitment since 2021 and brings our two-year total for capital commitments to $650 million. Our revised guidance demonstrates the strength of our Defense IT strategy. As our compound annual growth rates since 2019 are now 5.1% for NOI, 5.2% for EBITDA, and 4.7 percent for FFO per share, which demonstrates the durability of our portfolio and cash flows during some very challenging market environments. We're highly confident tenant demand will remain healthy, given the strong Department of Defense spending levels, supported by both parties in Congress, and ratified by the amount of private capital flowing into the space. This all provides the platform for us to continue to execute on our strategy and create shareholder value. Operator, please open the call for questions. Thank you, Mr. Budorick.

Operator

Ladies and gentlemen, to ask a question, please press star 11 on your telephone. Then wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Maynard Ebeke with Evercore ISI. Your line is open.

Unknown Speaker

Could you please expand a little bit on your commentary about upsizing your future development opportunities at Redstone and just kind of like, help us understand how many buildings, like, going forward, you kind of expect to maybe start and how deep the demand pipeline there is, specifically in Redstone? Obviously, it sounds very encouraging. And whether you've changed your underwriting economics that you expect there, based on like the strong demand you've been seeing.

Stephen E. Budorick

A lot of layers in that question, Maynard. All right, let me talk about the Master Plan. You know, as we commit the buildings to fulfill the demand of our development, it's not always to the plan that we've had, so we routinely revise it. We put a heavy emphasis on this current reassessment to maximize square footage, and we're able to squeak out some additional buildings. I don't remember the exact count, but it compiles about 500,000 square feet. So that was layer one. Layer two, let's talk about underwriting. Now, we have not changed our underwriting. We remain with the same threshold cash returns that we have had in the past, which currently is 8.5% initial cash yield on the development costs. Demand remains very high, and I would say there's a uniquely strong sense of urgency behind the demand that we are seeing. Tenants are looking in advance for their opportunities. They're awaiting certain things to develop with their ultimate customer. Once they have their opportunity set lined up, they want to move out quickly. So in response to that, we are advancing our pre-planning so that we can cut several months off the development cycle by having plans already developed that we can suit appropriate to that use and shorten our delivery period, accelerating lease-up. I might have missed a layer; you'll have to remind me.

Unknown Speaker

No, I really appreciate it. Just one quick follow-up on the demand that you see there. Could you maybe like help us think through like how much of the tenant demand is from tenants currently already with a presence in that specific submarket versus like tenants that are coming new to Redstone to capture kind of business opportunities there?

Stephen E. Budorick

Yeah, I'd say it's about half and half.

Unknown Speaker

Got it. Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Blaine Heck with Wells Fargo. Your line is open.

分析师问答

Blaine Heck

Steve, appreciate your commentary on midterms, but just to dig deeper and give you an opportunity to offer any more comfort on demand, I guess in the event of a change in congressional control, could that meaningfully change the timeline for getting the base budget passed and specifically change the timeline for the do you think programs like the Golden Dome might be more exposed to funding uncertainty than the base budget?

Stephen E. Budorick

Well, so I think if there is change in control, you've got a lame duck session, and I think they're going to jam that FY27 budget through earlier than they might if there's not a change of control, where there's time to be thoughtful about the programs that they're going to fund. Either way, I would expect no later than February we're going to have an FY27 DOD appropriation. I'm trying to remember the second half of the question. Oh, well, you know, Golden Dome is a specific funding name, but it's generally missile defense. Golden Dome is applying that missile defense in an aspirational way across the U.S.A., bring home that defensive shield in a deployable way to protect our country instead of the theaters of war where it's typically been deployed. Long term, that's not going to change. They might call it something different, but absolutely the need has been identified and it's going to be deployed. Timing might be an issue. As to the technology, there's no turning back. The investment in technology that's needed in this new threat environment where we've seen the impacts of drones and swarms of missiles, irrespective of which party is in, they've got to recognize the technological threat and the shortage or, you know, the imbalance between what we currently are able to deploy and the cost and volume of things we need to deploy in the future.

Blaine Heck

Great, thanks. Maybe for Britt, with respect to the proactive space recaptures, can you comment at all on the mark-to-market you expect on the releasing of that space, how much downtime might be baked into guidance, and whether this is a one-time opportunistic move or a strategy you can repeat where you see a credit or growth upgrade available?

Britt Snider

Yes, I'll hit the first part first. I mean, in terms of the three recaptures, I would say one of them is essentially flat, maybe slightly lower. One was up about 20% and the other was about down 20%. You know, overall pretty close when you put them all together. And then I would say in terms of the timing of this, you know, we're just seeing so much demand, both in Columbia Gateway and in Huntsville, that it was a good time to do it and, you know, evaluate, as Steve pointed out, some suboptimal tenants and can we replace them with higher credit profiles, higher growth profiles? It was just a good time to do it with essentially immediate backfills. So, not much downtime at all on any of those.

Stephen E. Budorick

And Blaine, I would add the mark to market is relevant, but in two of these cases it's a little less relevant because they were the only two tenants in our portfolio where we had gone on a reserved their balances, so we were on a cash basis with both of those. So from a true rent, we were able to get standpoint, at least with both of those, it was going from almost nothing to the new rent from the new tenants.

Blaine Heck

Got it. Thanks, guys.

Operator

Thank you. Our next question comes from the line of Richard Anderson with Canaccord Fitzgerald, your line is open.

Richard Anderson

So despite the bipartisan comments that you made, you know, clearly Trump is making COPT great again, to put it that way. And I'm curious if there's any, you mentioned kind of constantly, you know, kind of looking at what you have underway and revising the plan. When you think about the different forms of defense that you have embedded in your portfolio, some are involved, some of which, excuse me, you're missing some that maybe are growing at a faster rate because you had this thing all embedded five years ago. I'm sort of spitballing the question. But the idea is, are new initiatives coming online now that you in history have not been necessarily a part of, and so you're having to retweak the platform and be a part of that growth profile? Or do you feel like you're kind of there and largely aligned with where the big parts of the defense budget that are growing today, if that makes sense?

Stephen E. Budorick

Yes, it's hard to nail that down simply, but I would say some of the most advanced, the highest investment in advanced technology pertains to missile defense, that's why we highlight it. And all of that will be coordinated out of the command structure that's on the Redstone Arsenal. So that's ground zero for the missile and anti-missile world. There's also advancements that are occurring for the naval fleet in the command and control structure, technological research development, test and evaluation. We're exposed to that as well with our Navy portfolio. Britt commented about the success we're having at Columbia Gateway. That's largely tied to increased requirements in the cyber defense, and we all know that DOD, U.S. Cyber Command, is based at Fort Meade. We have several business parks that serve it. I would say there's going to be some interesting breakthroughs in manufacturing and construction. So I think you can expect over the next three years some pretty significant expansion of shipbuilding in a variety of places along the eastern and gulf seaboard. We're not going to be a part of that manufacturing. Some high-tech manufacturing that's occurring in Southern California. Thus far, we haven't seen an opportunity for us to be involved in that. But I think where the long-term mission funding and the defense of the U.S. is coordinated, we're in the right spots.

Richard Anderson

Okay, fair enough. And specific on cyber, it's growing, of course, but is it the same level of priority as it was five or 10 years ago with the advent of AI and everything else that's changing technologically? Or do you feel like it's just as much a priority to defense as it was a few years ago?

Stephen E. Budorick

Yes. I'm hardly the cyber expert of the country, but in my view, AI is an immense threat to our cyber defense position from everything I've read. I think it's going to require increased spending to counter the efficiency that AI might bring to the adversary trying to hack our networks.

Richard Anderson

Okay. Fair enough. And just a quick last question for whoever wants to take it. 95%, 95.2% precisely on the Defense IT portfolio. I mean, great vacancy leasing activity, obviously upped your number, but how close are we to sort of a, you know, a frictional level of vacancy that is not a whole lot of upside from that point? Or do you think that you could still close into 100% or something like that? I'm not sure if that's possible, but you tell me.

Stephen E. Budorick

Well, it's always tough to drive it much higher because you're trying to measure the demand or match the demand of the market with the space you have available. But we're optimistic we can push it up over the next couple of years. Not sure how high, but we're focused on it.

Richard Anderson

Right. But vacancy leasing, probably, this is your sweet spot now and maybe it starts to sort of naturally decline because there's just not as much more to do. Is that a fair statement?

Stephen E. Budorick

Well, I think you can see during the year, a change in our guidance. We started with 400,000 square feet, which we thought was aspirational. We're enjoying really strong demand. I think Britt broke out our projected leasing for the year. 55% went to space that was vacant at the beginning of the year. 25% was pre-leasing maturities that were seen that were scheduled. And then another 20% was asset managing a couple of lower credit tenants, taking that space back and putting it to better use with faster growing tenants. So, you know, we'll continue to manage the portfolio to optimize the return.

Britt Snider

Yes, and Rich, our retention rate's the highest in the sector, but there's still the component that's the inverse of the 80% retention, which is that 20% of the space, which is this year, through the nine months, is about a half a million square feet. So there's always that churn that's going to happen that will continue to backfill that space and provide metrics within the vacancy leasing target.

Richard Anderson

Yep, fair enough. Thanks, everyone.

Operator

Thank you. As a reminder, ladies and gentlemen, that's star 1-1 to ask a question. Our next question comes from the line of Seth Bergey with Citi. Your line is open.

Seth Bergey

I guess just looking at kind of the mark-to-market you put up on the three data center shell renewals this quarter, how much kind of data center shell square footage remains in the expiration schedule over the next 12 to 24 months? And do you think you would kind of achieve similar uplifts on renewal of those, if any?

Stephen E. Budorick

Well, I'd say over the last three years, the uplift has gotten higher, peaking this year at 140%. I think it breaks down to 110, 120, and now 140. So it's pretty exciting when we get to see you in that segment. Anthony, do you have an idea?

Anthony Mifsud

The, you know, over the next several years we have, um, these are gross square footage numbers. So we have 300,000 square feet expiring in 2028. We have almost 1 million square feet in 2029. But again, that's the gross amount. So only 10% of that would fall into our results. I think the more impactful results for the company will come when some of the wholly owned data center shells come up for renewal, all of which are outside of the next five-year period.

Seth Bergey

Great. And then, just is there any update on kind of a timeline to dispose of those kind of non-core assets that remain in your portfolio?

Stephen E. Budorick

No, I mean, the timing of our ability to do that in an accretive way for our shareholders is just directly tied to the interest rate environment in the investment market. With interest rates high, there's really very little ability to sell assets at a level that makes sense for our shareholders. I'd say several years out.

Seth Bergey

Thank you.

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Dylan Brzezinski with Green Street. Your line is open.

Unknown Speaker

I guess it seems like things continue to sort of remain very positive in your guys' sort of realm of the world and defense-oriented assets. But I guess, you know, what do you guys see as potentially the biggest near-term risk overall to the business?

Stephen E. Budorick

So, I think the demand is driven by DOD spending, and DOD spending is driven by the global threat environment. I think that's going to remain pretty consistent to what it is for quite some time. That's not a concern we have in the business. I would say the one thing that affects what we can deliver to shareholders is interest rates. We've talked a little bit of that on the call. Higher interest rates leaks out the money that could be FFO per share. And so we're focused on maximizing the financing impact on the company as we have opportunities to influence it in the future. But our underlying business strategy is strong and I have no concern about our ability to continue to execute the plan we have.

Unknown Speaker

Great. And then in light of that strong backdrop and seemingly limited risk to that, as you look at rental rate economics, I know you guys always like to talk about having a partnership with your client and therefore not pushing too hard on the face rent side of things. But are you continuing to see at all further relief on free rent and or the ability to maybe embed higher rent bumps into the overall lease structure, or is that still sort of at the same pace as maybe where we were at the start of the year?

Britt Snider

The last three years, well, Britt, you can talk about it. It's your success. Yes, no. I was just going to say we continue to, you know, drive down that free rent where we can, due to the demand we're seeing and lack of availability. But I mean, again, every time we build a new building in Huntsville, we're pushing, I mean, we set a new record with rates. You know, and in most of our markets, we're 10% to 20% higher than the rest of the surrounding markets. So, I mean, we'll push where we can on rate, but, um, you know, we're already at the top and I think pushing pretty at a healthy level.

Unknown Speaker

Thank you.

Operator

Thank you. Ladies and gentlemen, I show no further questions in the queue. I would now like to turn the call back over to Mr. Budorick for closing remarks.

Stephen E. Budorick

Thank you for participating in our call today. We are in our offices, so please coordinate through Venkat if you'd like to follow up. Thank you very much. Have a great day.

Operator

Thank you for participating in today's COPT Defense Properties Third Quarter 2026 results conference call. This concludes the presentation. You may now disconnect. Good day.

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